Closing of San Onofre seen as setback for nuclear power

A surfer rides a wave in front of the San Onofre nuclear power plant in San Onofre, Calif.

Published June 16. 2013 12:01AM

By BRIAN WINGFIELD, MARK CHEDIAK AND JULIE JOHNSSON Bloomberg News

Washington - Edison International's decision to abandon its San Onofre nuclear plant in California is the latest blow for an industry facing questions about its long-term survival.

Edison announced June 7 that it will permanently shut the plant's two reactors, trimming total U.S. operating units to 100 from 104 at the beginning of the year and 110 at the peak in 1996. The announcement brings to four the number of units permanently removed from service this year, the most for any year since the nation embraced nuclear power.

Other facilities are nearing the end of their projected lifespans and may need costly renovations while cheap natural gas has siphoned off market share. Potentially expensive regulations to bolster safety in response to a triple meltdown at Japan's Fukushima Dai-ichi plant in 2011 have raised the concerns of investors.

"The decision to shut down San Onofre is another sign that the economics of nuclear are under pressure given the low cost of alternative sources," said Travis Miller, a Chicago-based analyst for Morningstar Inc. "Just five years ago, nuclear power plants looked like a gold mine."

Since a near-meltdown at the Three Mile Island plant in Pennsylvania in March 1979, 19 reactors have closed or been designated for closure while only four have been approved for construction. The San Onofre plant, run by a subsidiary of Southern California Edison, was taken offline in January 2012 after a radioactive leak and unusual wear on steam generator tubes was discovered.

"This is a situation that is unique to Southern California Edison," Steve Kerekes, a spokesman for the Nuclear Energy Institute, a Washington-based industry group for reactor owners, said in a statement.

"This is a blow to California's energy diversity but is not an indicator of the industry's larger ability to reliably supply low-carbon electricity to hundreds of millions of electricity consumers," he said. "The fundamentals in the electricity sector continue to present a strong argument for the value of nuclear energy."

Edison decided to shut the reactors as the state's power supply faces its biggest test since market manipulation by traders for companies including Enron Corp. in 2000 and 2001 helped push electricity prices to record levels and triggered rolling blackouts across the state.

Calpine Corp. of Houston, NRG Energy Inc. of Princeton, N.J., and other owners of plants that sell power on California's wholesale market stand to benefit from the higher power prices caused by the nuclear plant's absence, according to Andrew Smith, an analyst with Drexel Hamilton.

"If you're a generator in California, this is a net benefit to you," Smith said in an interview. "If you are a consumer of energy, the reverse is true."

Without the 2,200-megawatt San Onofre plant, Southern California's dependency on power imported from neighboring Arizona and Nevada and other states will grow.

To replace the generation lost by San Onofre, California will need to build natural gas-fueled plants, which produce more pollution than nuclear power, said Miller, of Morningstar. In addition, the shutdown also will hasten the region's shift to wind and solar alternatives as California moves towards its goal of getting one-third of its electricity from renewables by the end of the decade, he said.

Nationwide, nuclear power reached a peak in 2001 when it generated 20.6 percent of all U.S. electricity. Last year, its share fell to 19 percent, its lowest since 1998, according to the U.S. Energy Information Administration.

The four reactors being constructed by Southern Co. of Atlanta and Scana Corp. of Cayce, South Carolina, as well as a previously abandoned Tennessee Valley Authority project that is being completed, are the only ones scheduled to be completed this decade. Dominion Resources Inc. and Duke Energy Corp. have announced in recent months that they will retire a unit each. Exelon Corp. of Chicago plans to retire its 44-year-old Oyster Creek reactor, the oldest in the U.S. fleet, at the end of 2019.

The economic climate, coupled with an increase in renewable energy sources like solar and wind generation, may not bode well for new units, said David Lochbaum, director of the Nuclear Safety Project for the Union of Concerned Scientists, a Cambridge, Mass.-based environmental group.

"It's difficult to get Wall Street to loan money against so much uncertainty," he said in a phone interview. "The four closures this year make Wall Street more apprehensive, not less apprehensive."

Edison, of Rosemead, Calif., decided to shut the plant, located between Los Angeles and San Diego, after determining regulators may take too long to decide whether it can restart. The company faced challenges from environmental group Friends of the Earth and Sen. Barbara Boxer, D-Calif., who raised concerns about the plant's return to service.

Dominion of Richmond, Va., closed its 39-year-old Kewaunee nuclear plant in Wisconsin in May after determining that low wholesale power costs, largely driven by a decline in natural gas prices, didn't justify keeping the facility open as its power purchase agreements were ending.

Duke Energy of Charlotte, North Carolina, the largest U.S. utility owner, decided in February to close its Crystal River plant in Florida. The unit had been shut since 2009, when workers replacing a steam generator triggered widespread cracking in the concrete containment building.

The last wave of U.S. plant closures was in the late 1990s, when falling gas prices helped tilt economics in favor of retiring rather than attempting large-scale repairs. Six reactors were closed from 1996 to 1998, according to NRC data, and peaked in 1996 when Haddam Neck in Meriden, Conn., Maine Yankee in Wicasset, Maine; and Zion unit 2 in Zion, Ill., came offline.

About 10 percent of the generating capacity retired in the U.S. since 2010 has come from nuclear, according to data provided by the Nuclear Energy Institute. Shutdowns of coal and natural gas plants have accounted for about 74 percent of the 35,596 megawatts of power retired within the past three years, the industry group said.

"The decision to shut down rather than retrofit the San Onofre nuclear plant shows the changing economics of the power market," Howard Learner, executive director of the environmental Law and Policy Center, a Chicago-based advocate of cleaner energy, said in a telephone interview. "We suspect other nuclear plant owners may start reaching the same decision."

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